[Inside Chodong] House Price Decline and Hindsight

"The pace of house price decline will accelerate." This was stated by Deputy Prime Minister and Minister of Economy and Finance Hong Nam-ki at the 38th Real Estate Market Inspection Meeting held earlier this month. He also said, "We will maintain the policy stance in a downward adjustment direction." This remark is quite different from the cautious tone Hong used in previous ministerial meetings. At the last meeting of 2021 (the 35th) held at the end of December last year, he used restrained expressions such as ‘transition to a downward stabilization trend,’ and at the first meeting of this year (the 36th), he spoke of ‘accelerating the transition to a downward stabilization trend.’ This is the first time he has made a definitive forecast with strong confidence that ‘house prices have fallen and the pace will accelerate.’

Recently, as Seoul house prices have shown a decline for three consecutive weeks, government officials appear to be gaining confidence in their statements. Underlying this is the government’s self-assessment that the February 4th Plan, which announced a supply plan of 836,000 households last year, has had a market stabilization effect. The government explains that unprecedented achievements were made, such as selecting candidate sites for 500,000 households, about 60% of the target volume. In fact, since the announcement of the February 4th Plan, Deputy Prime Minister Hong and other government officials have repeatedly warned of the possibility of house price declines using expressions like ‘peak theory’ and ‘global financial crisis level.’ Eventually, house price increases slowed down from the end of last year, and this year the government’s predictions have materialized. This government self-assessment even reveals a sense of relief that they have properly concluded real estate policies that had been criticized for numerous failures.

So how does the market view the effects of the February 4th Plan? While there is positive evaluation regarding the shift from a regulation-only approach to a supply-oriented stance, opinions are divided on the effect of price adjustment. Some even argue that artificial regulations such as liquidity reduction and interest rate hikes, rather than supply, have forced genuine buyers out of the market. Since the February 4th Plan is a mid- to long-term task related to redevelopment projects and has not actually supplied volume to the market, it is argued that evaluating it as a benchmark for market stabilization is meaningless. In fact, despite the plan’s announcement early last year, the average nationwide apartment price increase rate in 2021 was 13.25%, nearly double the previous year’s 7.04%, and the average apartment sale price in Seoul surpassed 1.2 billion won, doubling compared to May 2017 (607.08 million won) when the Moon Jae-in administration began. Because of this, some believe the recent downward trend in house prices is closer to a wait-and-see attitude ahead of the presidential election. It is explained that due to expectations of easing capital gains tax and loan regulations for multi-homeowners in the next government, sellers are reluctant to sell actively, and buyers are not rushing to purchase.

There is a saying contrasting ‘Seongyeonjimyeong (先見之明)’ and ‘Hugyeonjimyeong (後見之明).’ While the former means ‘bright wisdom to foresee future events,’ the latter refers to ‘the tendency to think that the outcome was predictable from the beginning.’ Why is the tendency of Hugyeonjimyeong, which tries to explain the past, problematic? The biggest problem with those who exhibit Hugyeonjimyeong is that they do not try to learn from the past. They believe they knew such events would happen from the start, and since things happened as they expected, they trust their hindsight as if it were foresight and do not try to learn. The current government, confident in market stabilization effects, has introduced about 30 policies until recently. However, the recent house price decline that appeared only toward the end of their term may instead trap the government in the quagmire of Hugyeonjimyeong, making them say, "See, I told you so," which is a cause for concern.

This content was produced with the assistance of AI translation services.